Your Mid-Year Financial Checkup – Part II

Looking for more tips to help organize your financial life?
Click here to review Part I of our checklist.

From retirement savings to tax obligations, you’re halfway to completing your mid-year financial checkup! Here are a few final tasks to cross off your list:

Mid-year financial checkup_PT2

Enroll in Social Security and Medicare

If you’re approaching your full retirement age or turning 65 this year, you’ll want to make sure you’re enrolled in Social Security and Medicare.

You have a few options for enrolling in Social Security benefits. Depending on your situation, you may choose to draw your benefits early, at your full retirement age (age 66 for those born between 1943 and 1954, and age 67 for those born in 1960 or later) or defer your benefits until age 70.1 Keep in mind that the longer you wait to collect Social Security, the more your benefits can increase. If you’re married, you may decide to collect spousal benefits and defer your own benefits until you turn 70 as a means to maximize your payments. Consult your advisor to determine whether this option is right for you.

You are generally eligible for Medicare when you turn 65, but the enrollment period can start as early as three months prior to your birthday (it can last up to three months after you turn 65). There are two ways to get Medicare coverage — Original Medicare (Part A and Part B) or through a Medicare Advantage Plan (Part C). You’ll want to at least consider signing up for Part A (Hospital Insurance) and Part B (Medical Insurance) during this period. If you forget to sign up during the allotted time period, you may have to pay a late enrollment penalty, which can increase your premium for Part B to an additional 10 percent per year that you don’t have coverage. For extra protection, it may be wise to enroll in Part C to cover what Part A and Part B do not cover.

Take Your Required Minimum Distribution

If you’re approaching 70 ½ or have passed this age, make sure that you take your required minimum distribution (RMD) to avoid a 50-percent penalty. You can opt to defer your RMD for the year you turn 70 ½, but keep in mind that you’ll have to take two RMDs the following year, which can put you in a higher tax bracket. If you’ve already been taking RMDs, it’s a good time to take a step back and review any cash needs that the RMD could fulfill.

Conduct an Insurance Needs Review

It’s important to review your insurance needs to make sure you have adequate coverage to protect you and your family. Like most people, you may have auto and home insurance already, but it may be a good time to consider other coverage options to bring extra peace of mind.

Life insurance is typically used to replace lost income if the family breadwinner has passed away. When you are young, term life insurance is a low-cost means of protection. It is best to review the value of your life insurance policy each year to ensure it covers what is important to you. If you have a mortgage, you may want your insurance to pay off your mortgage and provide for your family if you pass away unexpectedly.

Additionally, it’s important to consider situations where you may be unable to work, as difficult as it is to imagine. Over time, there is a greater chance that you may become disabled than die unexpectedly, yet many people are not adequately insured for this possibility. That’s why it’s important to make disability insurance part of your review process. There are several types of policies that can cover you in situations where you cannot work at all, while own-occupation insurance can provide coverage if you specifically cannot work in your chosen profession.

Most people age 65 and older will need skilled nursing, assisted care or in-home care at some point in their lifetime. Long-term care can cost as much as $281,415 per year2, and with medical costs rising more than five percent per year, this expense can have a major impact on your retirement.3 Therefore, you may consider purchasing long-term care insurance if you’re financially able. Policies can be expensive, so another option is to put money aside in a separate account specifically for health care expenses.

A good vehicle to hold your savings for health needs is a tax-advantaged health savings account (HSA). Your funds are not subject to federal income tax when you deposit them into an HSA and can grow tax-free, so long as you use the money for qualified medical expenses. You can also invest your HSA funds. To be eligible for an HSA, you must be enrolled in a high-deductible health plan. In 2015, individuals can contribute as much as $3,350 to an HSA, while families can contribute up to $6,650. A catch-up contribution of $1,000 is available to people age 55 and older. As you’re working through your mid-year financial checklist, assess whether you are on track to contribute the maximum to an HSA to take advantage of these benefits.

Consider a 529 Account

If you have children, this may be a good time to start setting aside college education savings, if you haven’t already. Consider a 529 account, which is a tax-advantaged savings vehicle that can help you build funds for future college costs. Although the contributions aren’t deductible, you can withdraw earnings tax-free for college as long as you spend them on qualified higher education expenses. Most states offer their own 529 plans, but each plan typically has different fees. Some states also offer tax benefits for contributing. A 529 allows you to be in control of the account and gives you the option to change beneficiaries if the original beneficiary chooses not to go to college. As part of your mid-year checkup, ask your advisor if contributing to a 529 plan would be beneficial for you.

Check in With Your Accountant

It’s important to sit down with your accountant to discuss tax-planning strategies for the year. Depending on your situation, your accountant may advise you to gift more to charity, keep track of deductible expenses or defer income. It’s always good to have a plan as you head toward year-end.

This checkup may seem daunting at first, but the benefits and peace of mind will typically become apparent over time. Plus, once you’ve worked your way through these tasks, you can get back to relaxing and enjoying your summer, with a better understanding of your finances.

If you need a refresher on any of the topics discussed in Part I or Part II, download our checklist to give it a second look later or share with a friend or family member


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Your Mid-Year Financial Checkup – Part II

time to read: 5 min